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Do Regional Differentials in Economic Freedom Yield Regional Unemployment Rate Differentials in the U.S.? A Brief Exploratory Note Adopting Panel Data Analysis

Richard Cebula ()

Econometrics Letters, 2016, vol. 3, issue 1, 11-25

Abstract: This study empirically investigates the hypothesis that the higher the degree of economic freedom in a state, the lower the unemployment rate in that state, other thing held the same. This hypothesis is based on the principle that greater economic freedom leads to greater real economic growth, which in turn reduces the unemployment rate. The framework studied consists of a panel dataset for the 50 U.S. states representing the period 2000 to 2012, a period which includes the Great Recession, as well as years prior to and following the Great Recession. The model estimated in this study includes for each state, in addition to a measure/index of overall economic freedom, control variables for the percentage of the population that is black, the percentage of the population that is Hispanic/Latin, the female labor force participation rate, and the percent of the population (age 25 and older) with at least a high school diploma. A number of state fixed-effects and dynamic panel data estimations are provided, all of which yield the finding that the greater the level of overall economic freedom, the lower the unemployment rate.

Keywords: State unemployment rate; economic freedom. (search for similar items in EconPapers)
JEL-codes: J10 J70 C23 (search for similar items in EconPapers)
Date: 2016
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